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Avis Budget Group's Blueprint: Internet of Things and Connected Cars

The Internet of Things (IoT) and smart car technologies are poised to have big impacts on the auto and rental car industries, and Avis Budget Group(NASDAQ:CAR) is adapting to keep pace with the changes facing the transportation market. I had the chance to talk with the company's chief innovation officer, Arthur Orduna, and he provided some valuable insights into how Avis plans to take advantage of some of the biggest trends in tech.

Image source: Avis.

Keith Noonan: From a general vantage, how do you see connected cars and the Internet of Things having an impact on Avis's business?

Arthur Orduna: Connected cars and IoT are additional elements -- but not the only elements -- that will help us create a continuously improving, seamless and competitively differentiated user experience, and also create a new and powerful third-party ecosystem of new services and products for our customers, as well as new and "magical" ways to interact and transact before, during, and after journeys at Avis, Budget, and Zipcar. From an IoT perspective, connected cars and connected drivers -- as well as a coordinated connected fleet -- will be important end points that can be securely connected with strategic platforms, services, and devices across the global IoT, driven by business relationships and curated partnerships that we will be driving. In summary, technology is drastically reshaping the car rental and car share experience for our customers -- and for the better. As broadband bandwidth and connectivity, mobile devices, and connected cars increase in number globally, we're imagining all possibilities and ensuring Avis continues to innovate and diversify our business.

In an industry first, we are spearheading a transformation of our fleet in support of our commitment to provide mobility solutions to customers. This initiative will result in 50,000 more vehicles becoming fully connected cars by early 2018, more than doubling the number of connected vehicles in the Avis fleet. In turn, it will provide travelers with increased control and convenience over the rental experience while also delivering operational efficiencies.

Noonan: You guys recently formed partnerships to make cars from your fleet available to Uber and Didi drivers. How do you see Avis being affected by the evolution of the sharing economy? Looking a bit further down the line, is there any concern about the possibility that individual car owners could rent out their self-driving cars to people in need of rides or rentals?

Orduna: To clarify, our partnership with Didi Chuxing involves making our vehicles available to their registered users -- not their drivers. Didi Chuxing's more than 300 million register users will have access to Avis Car Rental and Budget Car Rental vehicles when traveling outbound from China -- right from Didi Chuxing's mobile app.

That said, we now live in an ecosystem where car rental, ride-sharing, and ride-hailing each occupies its own distinct place, and as the need for more flexible mobility options increases, we see the pie only getting bigger, or being divvied up differently by Avis Budget Group and others.

The average customer drives a vehicle more than 450 miles over four days, but when you look at shorter-length rentals such as one-day transactions, the mileage per day actually increases. Customers that rent one of our cars for only one day drive more than 150 miles, on average. We also serve customers who need a vehicle on an hourly basis through Zipcar, the world's leading car sharing network with more than one million members.

We feel that as consumers' mobility and transportation needs evolve, whether it's changing models of ownership to peer-to-peer opportunities, we feel confident that we are well-placed to not only offer the right solutions but to also partner with current, new, and yet-to-be-created third parties and entities in an evolving global ecosystem.

Noonan: What's your strategy with regards to in-vehicle infotainment?

Orduna: Many of our customers demand the comforts of home while on the road, and rightly so. We continue to work closely with car manufacturers to enhance the experience we offer to our customers. But even more exciting, we see the connected driver -- the connected journey -- as an emerging potential marketplace for new forms of digital and physical services, products, and content. Beyond our traditional partnerships with car manufacturers, we are going to be exploring relationships that are new to the rental space, with an eye toward leveraging entertainment, information, location-based services, and customized/personalized offerings from existing providers who are just now eyeing our markets, fleets and customers as potential new distribution channels for their products and brands. More to come...

Image source: Avis Budget Group.

Noonan: Do you see the connected and self-driving car pushes affecting your Avis, Zipcar, and Budget businesses differently?

Orduna: Each brand appeals to a different customer, therefore connected and self-driving vehicles will represent something different for each business. Avis appeals to premium business and leisure travelers. Budget appeals to those seeking great value and is predominately leisure-focused. And Zipcar is meant for those needing a vehicle by the hour. We will look to tailor user experiences tied to connectivity, simplicity, seamlessness, and delight, that are contextually appropriate to those brands and those customer journeys.

We are closely monitoring developments in the automotive and technology industries and are working to understand what it will look like for each business. In fact, we recently announced a partnership with Waymo that will not only enable us to leverage our current capabilities and assets, but it will also allow us to accelerate our knowledge and hands-on experience in an emerging area as Waymo-enabled self-driving cars become available in the marketplace.

Noonan: How do you see incorporating connected cars, and potentially self-driving cars, into your business affecting fleet costs in the short term and in the long term?

Orduna: In the short term, connected cars will enable us to gather data such as mileage, fuel consumption, and maintenance needs quickly and efficiently. This will allow us to expedite the rental experience for the customer and improve fleet management.

We believe there are significant and potentially transformative long-term operational and economic benefits to be realized with a fleet of connected cars. In the coming months, we will be piloting our first connected city with a fleet comprised entirely of connected cars. This will allow for a better understanding of the efficiencies of a fully connected fleet and will allow us to start to understand the costs associated with incorporating a fully connected fleet into the business.

As I previously mentioned, we recently announced a partnership with Waymo. This partnership paves the way for us to use our existing services and expertise to expand into serving the nascent self-driving car industry. This collaboration also furthers our strategy of being the premier provider of fleet support and supply chain services for the whole range of today's and tomorrow's mobility solutions.

Waymo is, by far, the most advanced self-driving company in the market today. By working with Waymo, we will gain important insights and hands-on experience in servicing self-driving cars and developing best practices.

Noonan: Avis was one of the first major rental companies to get the app thing down. Can you give any insight into when a Budget app might be coming and what you're doing to stay ahead in the app and connected space as more companies get in the market?

Orduna: Our customers are not shy about telling us what they think needs to be fixed with car rental. The Avis mobile app was designed to do just that and give customers what they want. We're also anticipating future needs as more connected and autonomous vehicles hit the road. As they do, we're imagining all the possibilities and ensuring Avis continues to innovate and that we diversify our business.

Today, the Budget mobile app allows users to find their nearest Budget Car Rental location, obtain real-time price estimates and make, modify, or cancel a reservation. We are currently actively evaluating the needs of our Budget customers and are working to understand what the ideal Budget app would be from the customer's point of view. Expect more on this soon...

Noonan: How will data analytics help optimize relations with your customers and generate value in your fleet?

Orduna: Data analytics are primarily helping us optimize, personalize, customize, and tailor a customer's experience with us, and allows us to continuously learn and improve that user experience to increase loyalty and engagement through delight. We've looked at every facet of a customer's rental experience -- from browsing to booking, to the renter's experience when on the lot during the rental and at vehicle return. So, whether it's serving up your favorite "business" car from your last rental, or getting behind the wheel of a Chevy Camaro with just one quick swipe of the Avis app, technology is helping us to shape and deliver notably personalized, and more efficient customer experiences.

By more than doubling the number of connected vehicles in our fleet, we will provide travelers with even more control and convenience over their rental experience and obtain data to help us deliver operational efficiencies. For example, this data facilitates the enhancement and optimization of our fleet management capabilities and provides us with automated maintenance notification, real-time inventory counts, and more.

Image source: Avis Budget Group.

Noonan: Avis has mentioned reworking its rental process with the millennial demographic in mind -- what does that mean for you guys in terms of connected cars?

Orduna: The model of mobility for the last 100 years had been "pay to own" -- people owned a car, and they drove it when and where they wanted. It was a defining possession. However, the mobility landscape is evolving, thanks in part to millennials. Their consumer attitudes are influencing a shift into a pay-to-use, always-on, on-demand world; people are increasingly consuming transportation like they consume apps and data on a cell phone. Millennials are not going to live in an urban environment, have a car that they own, and pay a fortune to park. Instead, they will opt for flexibility and control over the kind of transportation solution they are looking for, at the time they are looking for it.

We have unparalleled mobility capabilities in terms of the customers' journey and in the supply chain. And with three household name brands known the world over: Avis Car Rental, which offers premium products and service; Budget Car Rental, which offers high-quality products and great value; and Zipcar, the world's leading car-sharing network with more than one million members, we are well-positioned for this future and are already addressing the full range of consumer use cases, including that of the expanding millennial market. By implementing the latest in technology, having access to reliable transportation means simply tapping an app. The future of mobility puts the power in your pocket...and the experience is only enhanced by the opportunities made available with connected cars.

On a separate but related note, our fleet management capabilities play a critical role in the evolving mobility landscape. From purchasing and registering vehicles to moving, cleaning and maintaining them, and later selling them, we are one of the few companies in the world that can manage such mega-fleets. Every provider in the mobility space will need the capabilities that we deliver.

Noonan: How do you see connected cars playing a role in your brand differentiation?

Orduna: Nearly doubling the connected cars in our fleet will ensure that we stand apart from our competitors and we remain at the forefront of our industry. The addition of these connected cars will allow us to become one step closer to realizing what we believe is the future of car rental, care sharing, and mobility as an evolving global service across all our brands and markets.

Keith Noonan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.